Selling Goods to Mexico from the U.S.? Be Sure to Exclude the U.N. Convention on Contracts for the International Sale of Goods
I regularly review contracts involving the sale of goods between the U.S. and Mexico or other Latin American countries. One of the most common drafting errors in these contracts is the failure of the contracting parties to specifically exclude the United Nations Convention on Contracts for the International Sale of Goods (CISG) when they intend to do so.
The CISG is an international treaty signed by 74 countries, including the U.S. and Mexico. In the U.S., the CISG is regarded as a self-executing treaty, meaning that it operates without any implementing legislation. The CISG is therefore federal law in the U.S., which preempts any conflicting state law provisions, including the Uniform Commercial Code (UCC) as it may be incorporated into state law.
As such, the CISG is the default gap-filling law in the U.S. applicable to all contracts for the sale of goods between U.S. companies and foreign companies whose places of business are in countries that are party to the CISG. Since both the U.S. and Mexico are party to the CISG, any contract for the sale of goods between a U.S. company and a Mexican company will be governed by the CISG unless the parties expressly exclude its application.
An example illustrates how the CISG comes into play. I am reviewing a contract this morning on behalf of a Mexican company that seeks to be the exclusive distributor in Mexico for a technology product manufactured by a Texas company. The governing law clause, drafted by the Texas company’s U.S. counsel, provides: “This Agreement shall be governed, interpreted and construed in accordance with the laws of the state of Texas.”
The laws of the state of Texas that govern the international sale of goods are: (1) The Texas Business & Commerce Code (TBCC), which is the UCC incorporated into Texas law; and (2) the CISG. Accordingly, if there is a dispute under an international sales contract governed by “the laws of the state of Texas”, the court or arbitrator should apply the CISG to fill any gaps in the contract because the CISG is a self-executing treaty, which is U.S. federal law, which preempts Texas law.
The problem is that the lawyer for the Texas manufacturer probably never intended for the CISG to govern. In addition, since the CISG and the UCC often contain different gap-filling terms for the same set of factual circumstances (e.g., remedies in the event of breach, contract formation through the exchange of forms), the outcome of a dispute under the contract may significantly vary depending on which body of law is applied.
Fortunately, Article 6 of the CISG allows contracting parties to exclude the CISG, vary its effect, or derogate from any of its provisions. I often use the following language to exclude the CISG from international sales contracts:
This Agreement shall be governed by and construed under the laws of the state of _______, U.S.A. (including the Uniform Commercial Code as incorporated into the laws of the state of _______, U.S.A.), without regard to its conflict of laws provisions and without regard to the United Nations Convention on Contracts for the International Sale of Goods (CISG).
Sometimes U.S. banks and businesses that lend or advance money to Mexican borrowers, for practical or business reasons, seek to have the Mexican borrower sign a Mexican promissory note (pagaré) with an effective date that is either before or after the actual date of signature of the pagaré.
For example, an effective date on a pagaré that is before the actual date of signature might be used to enable the lender to evidence a debt of the Mexican borrower that arose because of money advanced before the actual signature date of the pagaré. Similarly, an effective date on a pagaré that is after the actual date of signature may be used to enable the lender to evidence a future debt of the borrower that will arise if some event does not incur in the future (e.g., the Mexican borrower does not pay the lender’s invoices).
Article 170 of Mexico’s General Law of Negotiable Instruments (Ley General de Títulos y Operaciones de Crédito), which lists the elements required to create a valid pagaré, provides that, among other elements, a pagaré must include the date on and place at which the pagaré was signed by the borrower.
Accordingly, to avoid any possible argument by the Mexican borrower in a collection lawsuit on the pagaré by the lender that the pagaré is defective because it is not dated the actual date of signature or that the lender altered the pagaré post-signature, the most prudent course of action for the lender is to have the debtor sign the pagaré on the actual date that appears on the pagaré, whether the date is (a) pre-printed on the pagaré by the lender or (b) handwritten on the pagaré by the borrower or the lender.
If the lender must date the pagaré before or after the actual date of signature, one alternative for the lender would be to pre-print the date the lender wishes to include on the pagaré, whether such date is before or after the actual date of signature, BEFORE the pagaré is signed by the borrower. However, it is conceivable that this alternative could give rise to an argument by the borrower in a collection lawsuit by the lender that the pagaré is defective because it is not dated the actual date of signature contrary to Article 170. In other words, there is some risk to the lender associated with this alternative.
A much less favorable alternative if the lender must date the pagaré before or after the actual date of signature is to leave the date of the pagaré blank and fill-in the desired date, whether such date is before or after the actual date of signature, AFTER the pagaré is signed by the borrower. This alternative, which is not recommended, is far more likely than the previous alternative to give rise to an argument by the borrower in a collection lawsuit by the lender that the pagaré is defective because it is not dated the actual date of signature or because the lender altered the on the pagaré post-signature violation of Article 170.
Mexico Streamlines Corporate Formation With New Government Website
I am pleased to say that the Mexican government appears to have kept its promise to speed the process of forming a new business entity in Mexico by the creation of a new corporate formation website, www.tuempresa.gob.mx, the launch of which was announced in today’s Official Gazette.
The website enables users to:
- Search for and reserve a corporate name with the Ministry of Foreign Relations (Secretaria de Relaciones Exteriores);
- Pay the fees required to form the entity;
- Select a Mexican Notary Public to protocolize the formation documents; and
- Use and modify standard form corporate by-laws (estatutos).
Protocolization of the estatutos must still performed by a Mexican Notary Public following the physical appearance of the shareholders (or their attorneys-in-fact) with official identification and proof of address in hand, along with payment applicable Notary fees.
The new website is welcome news for Mexican businesses and investors, who might soon enjoy me reduction in the time and cost required to form a new company in Mexico.
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